Columbia, Maryland (PressExposure) February 03, 2009 -- Representatives from the National Financial Awareness Network, a Maryland-based personal finance publishing company, say that the recession is not all bad news for consumers struggling with credit card debt because credit card companies are increasingly motivated to reduce outstanding balances in hopes of not losing an account to bankruptcy.
The balance reduction, also known as a debt settlement, is typically reached after several negotiations between a credit card company representative and a cardholder who is several months late paying on his or her account. The past-due status of the account signals to the credit card company that the cardholder may be heading towards bankruptcy, in which case the lender often recovers nothing from the outstanding debt.
"Recovering something in a debt settlement rather than losing entire accounts to bankruptcies is far better for banks," explained John Janney, President of NFAN. "With credit card debt quickly reaching the one trillion dollar mark and unemployment on the rise, banks are bending over backwards in some cases to recover what they can."
Industry groups, like the National Foundation for Credit Counseling and the Financial Services Roundtable, are calling on regulators and credit card companies to grant more flexibility for offering cardholders reduced-balance settlements. Currently, credit card companies can reduce the amount cardholders owe, but the remaining portion of the debt must be paid within six months due to federal regulations. Federal regulators recently shot down a proposal to extend that installment period.
"We are seeing more and more articles, reports, and statements that point towards debt settlement playing a greater role in our economic recovery," said Maggie Beetz, Senior Financial Literacy Writer at NFAN. "Banks need to get their cash-flow moving, and that's hard to do with cash-strapped customers unless banks start making more settlement offers."
Janney said consumers can negotiate directly with credit card companies to reach debt settlement agreements. NFAN offers a Do-It-Yourself Debt Settlement Kit to help consumers with these negotiations, which is available at DIYDebtSettlementKit.com.